Anchored to the Floor: Persistence and Liquidity Regimes in the €STR – DFR Spread

Guglielmo Maria Caporale, Luis Gil-Alana and León Bertram von Ondarza de Miquel

No 12782, CESifo Working Paper Series from CESifo

Abstract: This paper examines the persistence dynamics of monetary policy in the euro area by analysing over the period October 2019 to September 2025 daily data on the €STR – DFR spread, i.e. the deviation of the overnight unsecured market rate from the ECB’s deposit facility rate. Fractional integration and cointegration methods are applied to analyse the degree of persistence of deviations from the policy floor and whether it changes across liquidity regimes. Both the €STR and the DFR behave close to I(1) processes, while the spread is integrated of lower order (d ≈ 0.55 – 0.70), which indicates mean reversion with long memory. This confirms that the DFR acts as a long-run anchor for overnight rates. When allowing for a structural break on 2 November 2022, which coincides with the ECB’s tightening cycle and the beginning of the balance sheet normalization, the analysis finds a decline in the estimated persistence in the post-break period (d ≈ 0.35 – 0.43). This regime dependence is confirmed by the liquidity regime analysis. These results imply that the operational effectiveness of the floor system is more accurately characterised by the persistence of deviations from the policy floor than by their average level, and that liquidity regimes affect the degree of persistence.

Keywords: liquidity; monetary policy implementation; persistence; fractional integration; fractional cointegration; €STR-DFR spread (search for similar items in EconPapers)
JEL-codes: C22 E52 E58 (search for similar items in EconPapers)
Date: 2026
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